Usually the word "dumping" is used in economic theory, and many could hear it on TV or radio. But few people know that this expression is used in other areas of knowledge. And where, it would seem, its use is unthinkable. For example, the concept of "dumping" is used in medicine as a definition of a very specific disease.
The concept of dumping in economic theory
Dumping is a deliberate reduction in the price of goods in order to oust competitors from the market and take a monopoly position. The logic of dumping is to keep the price of a certain product at a low level for a certain time, so that all competitors go bankrupt, and then return and increase by inflating prices.
Such a price reduction is considered illegal, as it violates the principles of the free market and competition. Although it is often possible to observe examples of dumping, it is rarely possible to hold accountable for such actions. It is too difficult to prove whether there really was dumping or the low price of goods sold as a result of efficient production or sales organization.
When the word appeared in economic theory
In the economy, it is quite new, since the international anti-dumping code appeared only in 1967. Up to this point, the very definition of what dumping did not exist.
Previously, the price of a product was based on its cost price and could not be lower than it, since the level of technology of a particular country was approximately the same, and the difference in price levels in countries located in different parts of the world was smoothed out by transportation costs. Most of the goods were produced locally, since it was not possible to preserve their consumer properties during the long transportation.
International dumping
This technique has received the greatest distribution in international trade. Often, individual countries pursue not only economic, but also political goals by lowering prices. This is done in order to bankrupt the enterprises of another country or to reduce tax revenues (due to the sale of a certain product) to the budget of this state. Sometimes this can even lead to default. For example, if the budget of a certain country is replenished only through the sale of, say, fertilizers, then dumping the price of this product by a competitor (competitors, if there is a conspiracy) can lead to bankruptcy of the state with all the ensuing consequences.
Dumping as an economic policy of the state
Some states use market dumping to attract investment or new technologies, offering cheap labor, loans with a zero or minus interest rate, or selling goods at a price equal to or even lower than cost in exchange for technology. This enables the state to receive the foreign currency necessary for certain purposes and new technologies that this state could not have obtained otherwise. At one time, this type of dumping was used by Japan, South Korea and China, the latter continues to sell its goods lower or at cost level, on the international market today.
What is dumping on an international scale, can be shown on the example of China. Many tourists are surprised that in China all goods and services are much more expensive than in other countries. Low prices for goods delivered abroad and high for the same products sold on the domestic market are clear evidence that a country is engaged in violation of international trade rules.
In order to hide the use of this technique, companies use various tricks. Use games with currency (currency dumping). Making one-off mass sales of goods at bargain prices, they mask sporadic (episodic) dumping with all kinds of discounts.
Local dumping
What is dumping at the local level, it is easier to determine, since trade enterprises are usually located in one region and can even be on the same street. Therefore, any sharp price reductions will be noticeable and will cause dissatisfaction of competitors. As a result, the appearance of such an item of expenses as legal costs. There is a high risk that dumping will lead to the bankruptcy of the enterprise itself, which violates the rules, especially if the goods are sold at a price below cost for a long time, but there is no effect.
Signs of dumping
Low price does not always mean dumping factor. The product may be poor quality and therefore cheap. It may simply not be in demand, and then it will be sold at a low price in order to return at least some money. This may be a product that was already in use, or defects were discovered during testing in the store. That is, there may be many reasons why the seller has reduced the price. So how do you know if it is dumping or not? There are signs by which you can accurately determine the dumping company:
- The product does not have any flaws or differences, but it is sold at a cost significantly lower than that of competitors. The price is often lower than the cost of the product.
- For the same product, the price for different customers will be different.
- Unreasonably low discounts are offered, and on the most popular goods.
- If the actions of a single company lead to the bankruptcy of other enterprises. Moreover, immediately after the liquidation of competitors, there is a sharp increase in prices.
Due to the fact that it is difficult to determine the exact reason for the low cost of the product, it is almost impossible to prove the dumping factor. But it should be borne in mind that lowering prices or selling below cost is most often disadvantageous to sellers. This technique is resorted to only in rare cases. It is more profitable to sell at an average market price or at a higher price. If the market is limited in size, and you can attract a buyer only at a low price, then they will dump only because the company simply cannot survive in another way. This can be observed on the Russian market of travel services.
Tourism dumping
One of the most common in Russia, and not only, is considered tourist dumping. The thing is that there are few destinations that attract most travel lovers. This is mainly a vacation at sea or resorts in southern countries. There are few places that can offer more or less comfortable leisure conditions, and travel agencies are actually forced to work with the same tour operators, offer the same hotels. As a result, they can attract customers by offering something exotic that is not so much in demand, or ordinary destinations, but at lower prices than competitors.
This phenomenon has become so commonplace in the Russian economy that whole communities of tourists have appeared who offer assistance in finding such travel agencies. An example is the Internet resource “Chiptrip. Dumping on a tourist field. " Finding it is easy. On such sites you can find out which country is best to go to during a given period, which tour operator can buy a ticket at the lowest price.
The growth of companies engaged in dumping in the field of tourism indicates that this part of the economy is in deep crisis. In this way, companies are trying to somehow stay afloat. Travel agencies and tour operators are forced to lower prices in order to at least somehow return the money spent. Moreover, even those who can establish a monopoly in this market will not be able to return the lost money, since price inflation will not have a positive effect. The tourism market is limited primarily by the financial capabilities of citizens. Because of this, many Russian tour operators were forced to attract customers with low prices and eventually went bankrupt.
Ways to combat dumping
Dumping harms both the economy of a single state and the global economic system as a whole. Not only does it destructively affect the principles of free trade, violating the rules of fair competition, it also leads to political crises and conflicts. To combat dumping both domestically and internationally, there are special methods, the application of which is criticized, but nothing better has been invented so far. This is the introduction of duties on the import of products of certain product groups and antitrust laws.
Antitrust laws are applied at the domestic level. If any company has acquired a monopoly position in the market, it immediately becomes the object of observation and control by the authorities. The state sets the maximum allowable price and the minimum possible volume of sales of goods. That is, a monopoly position will lead to even greater problems than the presence of at least 1-2 competitors in the market.
State duties as a tool to combat dumping of individual countries
State duties are introduced on goods imported from abroad, but only on those that are produced or can be produced domestically. Duties are also introduced on the import of goods from individual states, which are obviously engaged in dumping, but it is impossible to prove its use or to attract for it. This measure helps not only to help preserve the existing production sectors that would suffer from the actions of dumping companies, but also to develop the production of new goods that had previously been imported from abroad.
The concept of "dumping" in other areas of life
Most often, when the word "dumping" is heard, the listener thinks that this term refers only to economic activity. However, this is not quite true. It is enough to enter this definition in the search bar of Google or Yandex to verify this. This term is also used in medicine. For example, a diagnosis of dumping syndrome after resection of the stomach. However, it cannot be argued that this is some kind of rare disease. But it is considered one of the most serious pathologies.
The main symptoms of dumping the stomach are: dizziness, darkening in the eyes, weakness, loss of orientation in space, drowsiness, tinnitus, hearing loss, headache. Symptoms occur 30-60 minutes after eating.
Treatment methods
The disease occurs due to disruption of the stomach and intestines. Food passes through the intestinal tract so quickly that it simply does not have time to be digested and absorbed by the body. As a result, energy is wasted, but nutrients are not supplied. A person loses strength, losing weight, signs of anemia appear.
The main cause of dumping syndrome after resection (cutting off the lower part of the stomach) is complications in the stomach after surgery, when the wound has not yet healed. Also, the syndrome may appear due to a mistake made by the doctor (or the reaction of the body to external intervention).
A special diet is used as the main treatment. Its feature is a separate intake of solid food and liquid. First, the patient eats solid food, after 1-2 hours, liquid (soup or tea). Also, general strengthening drugs are prescribed to the patient.